Village Farms Buys 70% Stake in ROSE LifeScience

Village Farms International (VFF), a grower of agricultural produce and cannabis, announced Monday that it has acquired 70% of privately held, Québec-based cannabis company ROSE LifeScience for a value of up to C$46.7 million.

ROSE LifeScience is a leading vertically integrated branded and third-party supplier to the Québec cannabis market. The Province of Québec represents approximately 15% of total Canadian retail cannabis sales.

Village Farms acquired 70% of all outstanding shares of ROSE on a debt-free basis for a consideration comprised of C$19.9 million in cash and 2,411,280 common shares of Village Farms, for a total value of C$26.8 million. (See Insiders’ Hot Stocks on TipRanks)

Management Commentary

Village Farms CEO Michael DeGiglio said, “The acquisition of ROSE – by far the most successful Québec-based cannabis operator in our view – is a prudent and strategic means by which to enter, and rapidly ramp sales, in one of Canada’s largest provincial cannabis markets. ROSE adds an exceptional group of Québec-based experts to our Canadian cannabis operations. The team has a proven track record of success, and shares our belief in the importance of cultivation excellence, as well as the advantage of innovation and continuous improvement. We look forward to building on ROSE’s strong foundation in the Québec market, with a long-term commitment to the Company’s Québec heritage.”

Mandesh Dosanjh, president and CEO of Pure Sunfarms, added that ROSE immediately expands the company’s reach to over 90% of all cannabis retail sales in Canada, and represents a big step forward in Pure Sunfarms’ strategy to become the leading national cannabis supplier in Canada, with at least 20% market share in the dried flower category.

Wall Street’s Take

On November 9, Cantor Fitzgerald analyst Pablo Zuanic upgraded VFF to Buy from Hold rating and raised its price target to C$12.75 (from C$11.50). This implies 12.5% upside potential.

Zuanic stated, “Unlike apples, for instance, it seems few can grow quality flower at competitive costs. As domestic peers are forced to pivot away from the everyday low-price segment (most cannot make money there) and resort to buying from producers such as Pure Sun Farms, we think VFF will gain market share in both the domestic-branded and unbranded segments and will likely undercut Canadian peers in the export markets once it gets all the proper permits.”

Overall, VFF scores a Strong Buy consensus rating among analysts based on four Buys. The average Village Farms International price target of C$17.09 implies 50.8% upside potential to current levels.